Western Oil Caught in Army Regime’s Web

Analysts say the military-linked Myanma Oil and Gas Enterprise still has a grasp on foreign firms

By WilliAM BOOT

The resolve of major Western oil companies not to have dealings with the militarylinked Myanma Oil and Gas Enterprise (MOGE) may have weakened with the confirmation that Norway’s government-owned company Statoil is seeking an entry into Myanmar.

Plans by Myanmar’s Ministry of Energy to offer potentially lucrative offshore exploration blocks in the second half of last year were postponed after leading Western firms expressed concerns about MOGE’s continued involvement.

President U Thein Sein’s government said it would take steps in the meantime to open up its oil and gas sector, but this does not appear to have happened as the international oil industry anticipates announcements of a new bidding process.

“Elements of the former military junta still use the Myanma Oil and Gas Enterprise as a vehicle to exercise substantial control over the economy and, by extension, the government,” Arvind Ramakrishnan, the principal Asia analyst at Maplecroft, told The Irrawaddy.

“Leaving the military’s substantial influence over MOGE unchanged was a likely compromise agreed to by the government when it was revising its investment law in late 2012.”

Maplecroft is a UK-based firm producing investment risk assessments for international business. In a country risk report on Jan. 29, it said: “A lack of clarity over investment regulations is the biggest risk that investors, particularly in the energy sector, face in [Myanmar].”

Concerns about MOGE were expressed at an industry promotion conference organized by the Ministry of Energy in Yangon last September. The conference was attended by major Western global oil giants Royal Dutch Shell, ConocoPhillips, Total and Chevron’s Unocal, as well as China National Offshore Oil Corp. (CNOOC), Nippon Oil of Japan and Essar Oil of India.

Energy Minister U Than Htay postponed plans for bidding for up to 20 offshore exploration blocks. The delay was supposed to allow time for a cleanup of MOGE and to prepare a more transparent bidding process.

Efforts by the Ministry of Energy to sell licences for land-based exploration have not been highly successful. For the most part, only small foreign firms have shown interest.

The big oil companies are interested in the offshore sector, and that’s the area Statoil is pursuing in talks with both the authorities and a potential partner, according to reports by Norwegian business newspaper Dagens Naeringsliv.

The BP global statistical review for 2011 estimated Myanmar’s natural gas reserves at over 11 trillion cubic feet. U Than Htay has claimed reserves are 22 trillion cubic feet, but there have been no conclusive surveys to substantiate this statistic.

Norwegian newspapers have named one of Myanmar’s most respected private oil firms as Statoil’s potential partner.

“Statoil has been here several times and they are making very thorough surveys of my company, both technically and economically,” U Michael Moe Myint, the chief executive of oil firm MPRL E&P, was quoted by the Norwegian news agency NTB as saying at the end of January.

Who will be next among the big Western oil giants to step out of the shadows and show their hand? Less particular enterprises such as the CNOOC and Russia’s Gazprom are understood to have made approaches, perhaps forcing the likes of Shell and Chevron to also make moves.

Big Asian industry leaders are also less squeamish about industry ethics. Malaysia’s Petronas has taken onshore licences and Japan’s Nippon Oil has bought into an existing offshore gas development licence held by Thailand’s PTT Exploration and Production.

“The outlook for more regulatory certainty is gradually improving, although MOGE will continue to remain a mandatory joint venture partner for international oil companies in the coming licensing round,” Mr Ramakrishnan said.

“This will continue to pose extreme risks to international oil companies, given the substantial levels of corruption, poor administration and human rights violations associated with MOGE.”

The government of U Thein Sein has previously said it would open the country’s oil and gas industry to the Extractive Industries Transparency Initiative (EITI), an international monitoring body established in 2002 to watch over underdeveloped but resource-rich countries.

Run by retired Western diplomats, EITI seeks to increase public transparency on payments by oil and mining companies to governments and government-linked agencies.

“MOGE remains a black box of unknowing, yet clearly it will be the indispensable partner for any big deals,” Myanmar economy specialist Sean Turnell told The Irrawaddy. “So for foreign energy companies, the hope will be for certain amnesia to set in.

“[The hope is] that amid the ‘good news narrative’ embraced by the world with respect to Myanmar, MOGE will be seen as just another national oil company with which to do business,” said Mr Turnell, co-editor of the Burma Economic Watch, a bulletin published at Australia’s Macquarie University, where he is a professor.

“The Myanmar government has given public commitments with respect to EITI. Maybe new deals reached will be somewhat more open and transparent than before. It would be nice if other governments brought along the discipline of ensuring their own companies acted in a transparent and responsible way. In the case of US companies, they will be pushed in this direction.”

Ironically, perhaps, EITI is based in Norway’s capital, Oslo.